Chris Orestis

In the best of times, the insurance industry lives at an interesting crossroad of federal laws and state regulation. Agents and advisors must be aware of licensing requirements, laws and state level regulations that can vary by product and by state. Not only is it a challenge for them to keep it all straight, but lawmakers and regulators can find it difficult as well. Understanding what is happening at the state and federal level is important because staying in compliance is critical to maintaining your license, but it will also help you understand what opportunities could be emerging.

There are a number of legislative priorities currently in play that could have an impact on the insurance industry, and producers, as a chaotic 2020 continues to unfold.

• DOL’s Fiduciary Rule is dead, but Best Interest rules will be in effect on June 1, 2020.
• Retirement Enhancement and Savings Act (RESA) is working its way through Congress.
• Efforts to enact the National Association of Registered Agents and Brokers (NARAB) by the industry will continue.
• Legislation has been re-introduced into Congress to create a long term care “HSA” funded tax-free by a life settlement called a Senior Health Planning Account (SHPA).

But, trumping it all will be the response by the federal government and the states to the Coronavirus outbreak. On the one hand, we are in the midst of a public health calamity that will continue to playout for as long as it takes to develop and then administer a vaccine to the global population over at least the next two years. On the other hand, there is the economic fallout that has America and the world teetering between recession and a global depression. Most immediately the federal government has passed the $2 trillion CARES Act, which is only the first of more economic stimulus packages to come, and then will be followed up with more relief measures and rescue packages over time. The states will also be involved with disaster relief efforts, Medicaid administration for health and long term care with possible use of ACA open enrollments, tax policy and unemployment income deployment, and activist oversight by insurance regulators.

The combination of all this activity will not only impact Americans across all generations, but the business of agents and advisors will fundamentally change in many ways.

Coronavirus Response State Insurance Bulletins making “recommendations” to insurance carriers to give policy owners leeway with their policies during this period of crisis
This has been a rapidly developing situation and response, but as of April 2, 2020, thirty-six state insurance departments had issued bulletins offering guidance to insurance companies on their expectations for how policy owners and sales should be conducted during this unprecedented crisis. Among the guidance offered, common themes emerged instructing carriers to strongly consider extending grace periods for longer periods of time, establishing premium payment plans to avoid lapse, extending due dates for premiums, and waiving late fees and penalties. No department has suggested waiving premium payments, but they are focusing on ways to help policy owners to keep their policies in force in the face of interruptions in their income as well as making allowances for people who are constrained by social distancing needs.

Best Interest Standards effective June 2020 and over a dozen states working on their own interpretations-this could quickly become a mess for the industry.
In 2017, the U.S. Department of Labor proposed what is known as the Fiduciary Rule, which would have required all financial professionals who work with retirement plans or provide retirement planning advice-advisors, broker-dealers, insurance agents-to hold to the fiduciary standard that binds them legally and ethically to put their clients’ interests first. It would have prevented professionals giving retirement advice from concealing any potential conflicts of interest and would have required them to disclose all fees and commissions in simple dollar terms to their clients to ensure full transparency. Originally scheduled to be fully implemented by 2018, the U.S. Fifth Circuit Court of Appeals instead vacated the rule, bringing it to an unceremonious end.

By default, industry fiduciary standards will continue under Best Interest Contract (BIC). This is the 2019 Securities and Exchange Commission (SEC) regulation that attempts to improve safeguards for investors and standardize conduct of broker-dealers and financial advisors.

By June 30, 2020, broker-dealers and financial advisors must be fully compliant:

• Disclosure Obligation: Requires disclosure of material facts about the client relationship and recommendations of the products and services provided.
• Care Obligation: Requires reasonable diligence, care, and skill when making a recommendation to a retail customer. The client must understand potential risks, rewards, and costs associated with the recommendation.
• Conflict-of-Interest Obligation: Requires written policies and procedures reasonably designed to identify and disclose or eliminate conflicts of interest.
• Compliance Obligation: Requires enforcement of policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.

Retirement Enhancement and Savings Act- H.R. 5282 (RESA) would have a very positive impact for insurance and annuity advisors.
Intended to increase retirement savings for American workers through the employer-based system, the bill would modify requirements for tax-favored retirement savings accounts, and employer-provided retirement plans to encourage savings. It would also increase the tax credit for small employer pension plan startup costs and give small employers who start 401(k) automatic enrollment plans a tax credit. This is one of many things a startup lawyer may want to raise to a company in its infancy, as it is a good point to know.

Top goals of RESA include:

• Increase participation and contributions;
• Increase access for small employers;
• Increase education; and,
• Improve annuity selection and management.

National Association of Registered Agents and Brokers (NARAB) has been stalled in the U.S. Senate since 2016.

The establishment of a National Association of Registered Agents and Brokers (NARAB) is a step to help simplify insurance producer licensing in the United States. The NAIC supported the creation of a NARAB as a central clearinghouse allowing an insurance producer licensed in his/her home state to sell, solicit or negotiate in every other state in which the producer intends to do business, provided the producer is licensed for those lines of business in his/her home state and pays the state’s licensing fee. To become a member of NARAB, an insurance producer must be licensed in his/her home state, not have an active license suspension or revocation in place at the time of application, successfully pass a criminal background check and pay membership fees. Membership and participation in NARAB is entirely optional and voluntary; producers are not required to become NARAB members.

In January 2016, the Office of the President released the names of four nominees for membership on the Board of Directors of NARAB. NARAB has not yet been implemented, and the nominees continue waiting to receive confirmation from the U.S. Senate.

H.R. 5958, Senior Health Planning Account Act establishes a tax-free Long Term Care HSA funded by a life settlement
Current law already provides that the proceeds from the sale of life insurance-known as life settlements-are tax-free, but only if the policies are sold after the policy holders are seriously ill, by which time they often no longer own their policies. The Senior Health Planning Account Act builds on current law to provide seniors needed flexibility to plan for future expenses. Under the Act, seniors will be able to roll over their life insurance sale proceeds, tax-free, into Senior Heath Planning Accounts (SHPA), which would be dedicated to paying health care costs for themselves and their spouse. The accounts would be exempt from federal income taxation, similar to existing federal tax programs that encourage younger working Americans to invest in their own health care. SHPAs are expected to result in substantial Medicaid savings because private resources would be used to pay expenses otherwise borne by taxpayers. The SHPA Act is scored to generate substantial tax revenues.

Conclusion
Look for federal and state action that has been developing to still find ways to move forward, efforts to meet the Coronavirus crisis with relief for policy owners will be ongoing for the duration of this crisis, and perhaps the most consequential Presidential election in American history will all have a profound impact on the insurance industry-which in many ways will transform the business forever.

Life settlements have been in the market for over 30 years. What once was an unregulated financial transaction designed to help AIDS victims not covered by insurance pay for health care, has evolved into a well regulated, mainstream financial option for seniors. In 2018, there was $3.8 billion of life settlements transacted for life insurance policy death benefits that would have otherwise been lapsed or surrendered by the owners.

Americans own more than 150 million life insurance policies, but over $650 billion of death benefits are abandoned by the owners every year. Of that amount, seniors own $230 billion of death benefit that on an annual basis could potentially qualify for a life settlement. $3.8 billion of life settlements transacted last year indicates this is a healthy, growing market. Yet, in comparison to the amount of policies let go every year, and the high amount owned by seniors, you can see that the room for growth in this market is almost limitless!
More policy owners are becoming aware of life settlements every day thanks to TV commercials, positive news articles, and the growth of advisors incorporating life settlements into their practices. In fact, life settlements have become such a well-known option for policy owners that, if you are not talking to your clients about this option, someone else is.

Studies show that nine out of 10 life insurance policies are in danger of being lapsed or surrendered by the owner. But, according to the National Association of Insurance Commissioners (NAIC), the value that a policy owner can receive through a life settlement can be significantly higher. A Life Settlement Evaluation will quickly determine if your client would qualify to settle their policy while it is still in force and what percentage of the face value that they could receive as a payout for their policy.

But what should advisors know about life settlements beyond the basics, and what should they know about how the life settlement market functions?

Five Key Life Settlement facts you should know:

• Surrender Value vs Settlement Value—Life settlement industry averages over the years show that life settlement market value can be five times to 10 times greater than surrender value, and certainly a smarter option than to lapse a life insurance policy after years of premium payments. The range for a life settlement can be as low as 10 percent of the face value, and can climb as high as 60 percent or greater of the face value.
• Reverse Underwriting—Qualifying for a life settlement is the opposite of qualifying to purchase insurance. In this case, the older and more impaired the life of the insured is, the higher percentage of the death benefit the policy owner will receive in “present-day value.” A person who would qualify to buy a life or LTCI policy would be too young and/or healthy to qualify for a life settlement, and a person who would qualify for a settlement would be an automatic decline to buy any type of life/health insurance. The typical age range for a life settlement is 75-89, but younger or older applicants can qualify based on the severity of their health related impairments.
• New Value from Old Asset—Life insurance policies are legally recognized as assets of the policy owner, with the right to sell their policy for its market value. Once a policy is sold, the owner will receive a lump sum that can be used in a variety of ways to meet the unique financial needs of seniors and/or those suffering from health and long term care needs. The minimum policy size to qualify for a life settlement is $100,000 of face value (and there is no upper limit for policy size).
• Tax Advantages—Life settlements provide specific tax advantages for policy owners. If a policy owner is diagnosed as chronic or terminal, the proceeds from a life settlement are tax-exempt. If a life settlement is done for a policy owner not chronic or terminal, the proceeds received are taxed at capital gain for any amount received above the basis in the policy (basis=premiums paid). Policy owners rarely need to pay taxes for life settlements.
• Fiduciary Responsibility—A life insurance policy is legally recognized as an asset like a home or stocks. The owners of these assets need to be informed of their options to maximize their value, and the same is true of a life insurance policy. Advisors need to understand this option and educate their clients or risk possible legal ramifications. There are settled lawsuits on the books brought by policy owners against advisors for failing to inform them of their life settlement option. Life settlement evaluations are a smart defense for advisors against potential future problems from clients who abandon a life insurance policy.

What Is the Life Settlement Evaluation Process?
Step One—Information: Submit policy owner information and a current, in-force illustration.
Step Two—Analysis: Policy owner information is reviewed for age, gender, state of residence, and prevailing health impairments impacting remaining life expectancy (the typical qualifying range is 2-10 years). The policy illustration will be reviewed to analyze the policy economics for the remaining time the new policy owner would keep the policy in force.
Step Three—Results: Longevity/settlement experts present a policy valuation analysis detailing what the owner could expect to receive as a percentage of the death benefit for their policy. A formal purchase and sale agreement is executed if the policy owner agrees to the valuation offer. The typical time it takes from Step One—opening the case, to Step Three—closing the purchase and sale of the policy, is 60-90 days.

Advisor Life Settlement Checklist

• What type of licensed entity is the organization: Provider or Broker?
• Are you working direct with the buyer, or are you working with a broker between you and the buyer?
• Does the settlement entity have contracting documents and state filed disclosure forms to appoint an advisor under their license and E&O?
• Will the entity cover the costs of, and order, all medical records, life expectancy reports and do all the settlement work for the submitting agent?
• If an advisor is going to co-broker with a licensed life settlement broker, have they been properly informed about state regulatory laws that the advisor (and any up-line participating in remuneration) must possess a life settlement broker’s license, specific life settlement E&O coverage, and meet consumer disclosure and annual state filing requirements?
• Does the settlement entity require any kind of exclusive, prohibiting the advisors from talking to other settlement entities about a case at any time?
• Does the settlement entity take a commission out of the gross offer to pay themselves, or is it a no-load settlement with advisors fees paid separately from the offer?
• If a brokerage commission is taken, how does the advisor independently verify from the buyer how much the actual gross offer is, and how is the co-brokerage commission divided between the settlement broker, the advisor and any up-line?
• Is the compensation for a settlement based on the face amount of the policy, or is it taken as a percentage out of the gross offer?
• If a term conversion, does all of the conversion compensation get paid to the advisor and the up-line?

Life settlements play an important role in financial planning for seniors. A policy owner is always better off to get the highest value for their asset, than to potentially lapse or surrender for far less. There are a number of advantages for seniors who utilize a life settlement, including: Favorable pricing for higher age and more impairments, property ownership rights and protections, tax advantages, and fiduciary considerations.

But, for advisors seeking to access the life settlement market, it’s important they conduct due diligence before working with a settlement entity. Advisors should understand the key differences between: Working with a life settlement broker or under direct appointment with a buyer; co-brokerage licensing requirements and E&O coverage; no-load settlements vs commissions taken out of the offer; and disclosure vs non-disclosure compensation rules. These are among the factors that can be completely opposite from each other based on if advisors co-broker a life settlement versus acting as an appointed agent of a life settlement buyer.

To hear many baby boomers and Gen Xers tell it, Millennials are lazy, entitled workers whose parents heaped them with so much praise they are unmanageable workers. In fact, Millennials are different than their parents and big brothers and sisters. Consider the hard-knock lesson many learned from hitting the job market during the Great Recession and you will understand why they have put off marriage, buying a home and buying insurance.

But there is a positive lesson they have learned from coming of age in a time of uncertainty: Many have realized they have to take responsibility for their own futures. A Harris Poll conducted for the Transamerica Center for Retirement Studies found that 71 percent of Millennial workers are saving for retirement at a median age of 24, younger than Gen X’s starting age of 30. Moreover, 39 percent of Millennials would be considered “super savers” who are saving more than 10 percent of their salary each year.

That means there is growing opportunity for appealing to this group who currently make up 46 percent of the U.S. workforce, who are technologically proficient, curious and receptive to new concepts. And who, above all, are accustomed to getting information and making purchases online.

InsurTech emerges
One of the surest ways to connect with Millennials is by using the method of communication and commerce they are most comfortable with-technology. Technology-driven insurance transactions, or InsurTech, has been rising in prominence in the insurance industry over the last decade, whether it people are looking to find an effective HGV insurance policy, or for their car, or even for anything else – it is much easier these days. Technology driven innovations in the insurance industry are primarily focused on improving transactional efficiencies and customer experience. However, InsurTech is now being watched closely with an expectation that it will move from promise to impact. Investments that have been made over the prior years need to start delivering meaningful bottom line results for carriers, distribution and for the consumer.

As part of this transition, InsurTech will keep moving away from being disruptive technology to collaborative. The technology innovators are coming to realize that they will not be replacing insurance distribution or manufacturing. Carriers and web-based platforms have long sought to knock distribution out of the transaction. However, as InsurTech comes to appreciate the challenges of distribution and the value that today’s independent brokerage model plays, they will look to collaborate with carriers and distribution instead of replace. To gain traction in the industry and with consumers, InsurTech must empower the smooth interaction between insurance manufacturing and distribution to get an efficient, well-priced product into the hands of the consumer. As of today, commercial lines have been quicker to embrace InsurTech, but life, health and annuities are starting to catch up.

Engaging the Millennial
Millennials are more comfortable engaging in commerce online than they are in person. They have grown accustomed to providing personal and financial information through a web-based interaction, and that creates a new door for distribution to reach them for insurance information and sales. As they have proven with e-commerce and social media, Millennials are desensitized to providing very intimate and detailed information that can be used in insurance for underwriting. If you have ever seen a “which celebrity is your twin” survey on Facebook, or if you have ever used a genetic testing service like 23 and Me or Ancestry.com, you can appreciate just how willing Millennials are to trade personal information and even DNA samples for value back to them.

This means that insurance products can be mass-customized to create a new type of consumer experience. Distribution can gain incredible insight into the Millennial and target the individual’s profile for product design, pricing and ongoing customer interaction. One of the biggest emerging opportunities for distribution is using InsurTech innovations to create more touch-points with their customers during the lifecycle of an insurance policy.
Today, the lifecycle of an insurance transaction exists on three planes:

1. Purchase
2. Premiums
3. Claims (or termination)

InsurTech can add a fourth plane to the transaction. The ability to personalize the experience with so much available information allows distribution to de-commoditize the insurance transaction. An abundance of information and a willingness to share by Millennials can help build a stronger bond between agents and consumers. By opening up new opportunities and tools for communication and engagement with the consumer, agents can deliver ongoing ancillary value to their clients. This will strengthen the relationship for distribution creating better client retention and possibly new business opportunities. In addition, for the carrier, this is an opportunity to build brand loyalty and work together with distribution to create more sales.

Underwriting can create value and opportunity
The intrusive nature and long cycle-time of underwriting will be reduced by InsurTech innovations. This can enable quicker collection of underwriting requirements, pull from more data sources and allow for cross-referencing information. It will also open up tech enabled point-of-sale underwriting from the field with agents, and from the consumer via self-reporting and new methods to collect samples. The goal is to reduce consumer friction by increasing accuracy and speed-to-decision from weeks to days and, whenever possible, instant decisions. Simultaneously, InsurTech is leading the way to combat fraud, reduce inaccurate assessments, improve pricing accuracy, and expand product choice and design.

One emerging area of underwriting, which is not yet quite understood, is genetic-based testing. In a number of ways the insurance industry has had genetic-based underwriting almost from the start. Questions about family history ae the most rudimentary form of genetic testing available. For the consumer, they have grown accustomed to providing family history and genetic samples to learn about their roots from services like Ancestry.com. Today there are significant advancements happening in the field of epigenetic underwriting that can not only improve the risk management dynamic, but also create new opportunities for distribution.

Epigenetic underwriting value-chain
Genetic-based underwriting seeks to identify and assign a measure of value to DNA markers that make up the genetic code we inherit from our parents and ancestors. This information can tell a lot about our biology and health, and can give clues toward an individual’s predispositions to diseases and malignant conditions. However, there is more than just DNA to analyze and understand how a person’s gene expression could influence their longevity. As the prefix epi, which means “on, above or upon,” indicates, epigenetics is the mechanism that regulates gene expression. As a science, epigenetics measures biomarkers that attach to your DNA and how they change as you modify your lifestyle and environment. As such, it can be used as an element of the underwriting process.

Your epigenetic age can be quite different from your chronological age. Based on the habits a person has in a number of key areas, that epigenetic age can move upward or downward. Key areas to make a positive, measurable impact on your genetic health are: Diet, exercise, supplemental nutrition, rest, stress and environmental factors such as pollutants. Epigenetic testing can deliver not only far more accurate underwriting information in a quicker timeframe than anything currently available, but consumers can receive incredibly important insight into their own molecular health, make modifications, and then continue to monitor for improvements with additional testing.

Value-chain

• Greater accuracy and quicker turnaround time for underwriting is of significant value to carriers and distribution.
• Insight into one’s own biological age and health, with a roadmap to making measurable improvements, is of significant value to consumers.
• Opportunity for ongoing interaction between distribution and the consumer to test for underwriting improvements, which could possibly result in improved pricing and product features, is of significant value to everyone in the value-chain.

Conclusion
If you want to catch fish, then go fishing where the fish are. If you want to catch the attention of Millennials, then you need to go where they are swimming and use the right bait. Millennials respond well to new information, customized products and solutions, and technology. They are more comfortable shopping online than in person, and are very willing to share information and even DNA samples if they perceive sufficient value for the exchange. The question for the insurance industry is, with their tendency to delay moving forward into the norms of adulthood, how do we get them to pay attention to us?

Well, InsurTech is on the verge of transforming the insurance industry with collaborative technologies that bring the carrier, distribution and the consumer together with more value and efficiency in the insurance transaction. Underwriting is poised to benefit greatly from technological advances and genetic-based testing that will speed up the process and bring more value to consumers. The nexus of InsurTech and habits of the 71 million Millennials is a ripe opportunity for distribution to access this emerging generation on the rise as a driving economic force in today’s America.

A proposed federal law that would enable consumers to sell life insurance policies and use the money to pay for long term care, tax free, has the potential to save taxpayers billions of dollars while improving the quality of life for millions of seniors. You can Buy cheap life insurance at affordablelifeusa.com along with many other providers, make sure you buy from a trusted insurer.
H.R. 7203, introduced by U.S. Rep. Kenny Marchant (R-TX) and U.S. Rep. Brian Higgins (D-NY) in November, would, for the first time, permit seniors, regardless of their health status, to use life insurance policies they already own to fund a wide range of health care costs including long term care expenses and long term care insurance premiums.

If passed into law, the bill would create Long Term Care Accounts as a private pay solution to the public policy problem of sky-high post-retirement costs. By keeping seniors off Medicaid for their long term care, the legislation has the potential to save taxpayers as much as $2 billion over the next nine years, according to the Alliance for Senior Health Care Financing, and it gives seniors access to assets that can improve the quality of life in their final years. Supporters of H.R. 7203 believe it has widespread, bipartisan support as a solution to the growing cost of senior care in the country that cuts the costs of a massive taxpayer-financed government program. The bill has been referred to the House Ways and Means Committee on which Marchant and Higgins serve.

Often, end-of-life decisions about care become a race to find assets to pay for what can be very expensive options. Fidelity Investments estimates the total cost of healthcare and long term care costs in retirement will average $280,000 for the senior who retires this year. With these costs so prohibitively high, 62 percent of all nursing home residents rely on Medicaid funding to pay for their care according to the Kaiser Family Foundation. Of that population, the Government Accounting Office estimates 38 percent own a life insurance policy that they will abandon to qualify for Medicaid.

For many seniors a life insurance policy is one of their most valuable assets, but the policies may only pay out benefits when the holder dies leaving untapped resources for many retirees. A secondary market has evolved to purchase the policies, but many seniors abandon the policies as the premiums rise or sell them back to the original insurer for pennies on the dollar.

The concept of using life insurance proceeds to fund a tax-free account only to be used for post-retirement health and long term care costs was created over a decade ago. Known as LifeCare Xchange®, it gives seniors with chronic illness or a terminal condition the ability to exchange a life insurance policy for a tax-free benefit plan paying for living expenses and long term care. It was endorsed in 2017 as part of the National Association of Insurance Commissioners (NAIC) white paper “Private Market Options for Financing Long-Term Care.”

Legislative action to support tax-free long term care benefits started in the states
The idea of opening up the life settlement market to seniors so they could use the secondary market value of their life insurance policies to pay for long term care was first recognized by state governments. Medicaid departments and state legislatures saw this as a potential way to save taxpayers’ dollars while opening up access to a critically needed private-pay funding source.

Starting in 2010, thirteen states introduced life settlement disclosure legislation to educate policy owners about the option to sell a life insurance policy to fund a long term care benefit plan and remain private pay: California, Florida, Georgia, Kentucky, Louisiana, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Texas, and Washington. The bills codified the long term care benefit plan structure as a way to protect the funds and ensure they will only be used to pay for long term care services in a tax-advantaged, Medicaid-qualified spend down.

A Federal law to create a national solution
H.R. 7203 takes the concept one step further by giving seniors the right to set aside money received from life insurance policies tax-free before they need it. This would allow seniors to plan for long term care and not have to wait to cash in their policies when they are ill.

This bill would authorize using the proceeds of a life settlement—the sale of a life insurance policy for a market value return—to be rolled over, tax-free, into accounts dedicated to permitted health care expenses. Under the proposed legislation, distributions from the accounts would not be taxed if used for permitted expenses. Distributions for unauthorized purposes would be subject to both income taxes and penalties. Any undistributed amounts in the accounts, including investment earnings, would not be taxed during the lifetime of the account holder or their spouse.

The 2017 National Association of Insurance Commissioners white paper identified life settlements as “one option seniors might use to generate resources to pay for their long term care needs.”

“Policy owners who sell their policies receive a lump sum payment that is generally four or more times greater than if they lapsed or surrendered their policy, according to government and university studies,” the report found.

Seniors who have felt they had no choice but to lapse a life insurance policy to qualify for Medicaid now have an option that can improve their lives in their final years. This is an important step toward finding solutions to the long term care crisis facing the United States.

Legislative Timeline
In 2009, Conning & Company released a research paper about the evolution of the life settlement industry. In it, they specifically analyzed the growing use of converting life insurance policies to pay for long term care services. They surmised that there would be an alignment of interests between owners of life insurance policies, providers of long term care services and state governments. Their goal would be to find ways to encourage the use of the secondary market value of a life insurance policy to pay for long term care as an alternative to the lapse or surrender of a policy to go onto Medicaid. The Conning & Company report wrote: “What is new is the concerted effort to integrate life insurance policies and long term care providers. This new source of funds represents a potential alignment of long term care providers and state governments. Both state governments and the long term care industry are working to find a solution to the budgetary threat to Medicaid created as aging Baby Boomers impoverish themselves in order to have the state pay for long term care.”

In 2010, the National Conference of Insurance Legislators (NCOIL) unanimously passed the Life Insurance Consumer Disclosure Model Law. Conversion of a life insurance policy to a Long Term Care Benefit Plan is one of the approved options in the Model Law. “It is imperative that policyholders understand that they have alternatives to merely lapsing or surrendering their policy. The model would require a clear notice to consumers…including conversion to long term care,” said NCOIL President Rob Damron.

In 2012, the state of Florida passed HB 5001, “to examine methods to allow an insured under a life insurance policy or the contract holder of an annuity, to convert the policy or annuity to a long term care benefit. The agency shall submit a report of findings and activities of the workgroup, including recommendations and proposed legislation, no later than January 15, 2013.”

In 2012, Florida State University Center for Economic Forecasting and Analysis released a study analyzing the cost savings of policy conversions to pay for long term care that projected savings to taxpayers of $150 million annually.

In January, 2013, Florida Agency for Health Care Administration (AHCA) released a legislative report and bill language to the Florida Legislature recommending the use of life insurance policies to defray costs of Medicaid.

Over 2013 and 2014, legislative testimony is presented during special hearings before NCOIL, the state legislatures of Florida, Texas, Maine, a joint meeting of the New Jersey Medicaid and Insurance Departments, and before legislative workgroups in Florida, Louisiana and Maine.

By 2014, thirteen states had introduced legislation to educate policy owners about the option to sell a life insurance policy to fund a Long Term Care Benefit Plan and remain private pay as part of a tax-advantaged Medicaid spend-down.

On July 19, 2017, the NAIC’s Long Term Care Innovations (B) Subgroup released the policy paper Private Market Options for Financing Long-Term Care endorsing the life insurance secondary market as a viable option to help people pay for long term care. In it, the NAIC points out the disparity between the cash surrender value of a life policy and its much higher secondary market value. In the policy memo the NAIC discussed the use of a “bank and trust account” (Long Term Care Benefit Account) that is recommended to families at the point of need by “elder care providers and professional advisors.”

All of this led up to the introduction of H.R. 7203.

A Solution that has come of age
We have reached the point where we can no longer ignore the realities of an ever-growing, aging population that will require long term care but have diminishing resources to pay for it. People need to arm themselves with information and options to fund long term care if they are going to maintain dignity and quality in their lives. It is hard to predict the future of government programs such as Medicare and Medicaid. However, pressure on these programs will continue to grow and the pushback from lawmakers will only get more forceful.

This marketplace innovation has been growing in use around the U.S. for over a decade. Financial and legal advisors, insurance professionals, and long term care service providers all recognize the value of using the secondary market value of a life insurance policy to pay for long term care. It is a far better alternative than lapsing or surrendering a policy, particularly when surrender is only used as a way to qualify for Medicaid.

Congress has now joined numerous state legislatures and regulatory bodies to carefully examine and endorse this approach to fund long term care. By creating a tax-free incentive for life insurance policy owners to settle a life insurance policy instead of abandoning it, we could be creating a win-win for seniors and the taxpayers who have had to fund many of the costs of long term care in America.